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Investment view

If there is one word I used when writing about the market last week which I feel has turned out to be appropriate, it is “possibly”. A week ago the market had bounced, interest rates were down, God was in his heaven. Last week, it all gently fell apart again. Heaven alone knows what treats the rest of the summer has in store for us.

We benefited from a surfeit of information last week. Two central banks published two weighty tomes. The Federal Reserve Bank of the US published its Beige Book – a survey of regional economic trends and a very good indicator of what was happening in corporate America. The Bank of England added its Quarterly Inflationary Report. Neither made very happy reading. The Fed painted a picture of an economy that had all but ground to a halt. Even the consumer had thrown in the towel. No wonder markets were downbeat.

The Bank of England had a rather more positive story to tell but one that was not without its concerns. It is now clear why interest rates have been cut. The bank feels more threatened by the slowdown in the world economy and, in particular, by what is happening in Europe, than by double-digit inflation in the domestic housing market. So concerned is it that more rate reductions look likely. Given that Germany added its own ha&#39penny&#39s worth to the tale of woes last week, its concern appears justified.

Gerhard Schroder admitted that forecasts for German growth during the current year were almost certainly too optimistic. Two per cent was the government&#39s expectation. A more deliverable number looks like 1.5 per cent. Oh how the mighty are fallen.

But it was not all bad news. Germany may have had to ratchet down expectations for economic expansion but at least inflation appears to be receding from the agenda. German inflation lost a whole one percentage point last month, bringing it down to a much more manageable 2.6 per cent. At this rate, the European Central Bank will soon run out of excuses not to lower interest rates.

In America, we had some most encouraging productivity figures. It seems American workers are still becoming more productive. This is good news that should not be underestimated. There were worries that the productivity gains during the American economic miracle of the late 1990s were a bi-product of that economic upswing – that they were cyclical rather than structural changes. The fact that these gains are still coming through when economic activity is on the decline suggests there has been real progress made, particularly through new technologies. This has positive implications for company margins. But it was good news that was swept aside last week as we were dealt still more bad cards on the technology and telecom front.

Cisco Systems briefly enjoyed pole position in world stockmarkets when it overtook Microsoft to become the world&#39s most valuable company as Microsoft reeled under blows from American anti-trust lawyers. Last week, Cisco disclosed sales were down by around a quarter and profits had all but disappeared. Worst of all, it was still unable to see the bottom. There was a belief that things were not getting any worse in America itself but, as for the rest of the world – well, there seem to be depths still to be plumbed in Europe and Asia.

The immediate effect was to send the whole of the technology sector into retreat. It all felt very uncomfortable. But then to be fair it always does at the bottom of the market. With so many professional investors on bucket and spade duty, it is unsurprising there is a lack of bargain-hunting at present. Perhaps this is the opportunity nosy buyers have been waiting for. Oh well, here goes.

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